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Indiana lawmakers stall soil productivity tax hike
Indiana Correspondent

INDIANAPOLIS, Ind. — A new Indiana law prevented an estimated $57 million property tax increase on Hoosier farmers from going into effect March 1. Under the new law, a recent change in farmland assessment will be delayed until further study in conjunction with Purdue University College of Agriculture.

Passed unanimously by both the Indiana House and Senate, SEA 319 was the first piece of legislation signed into law by Gov. Mike Pence. Sponsored by Sen. Jean Leising (R-Oldenburg), the bill was fast-tracked through both houses.

“Indiana is agriculture, and Lt. Gov. (Sue) Ellspermann and I appreciate the General Assembly’s bipartisan effort to quickly pass this critical piece of legislation to help Hoosier farmers,” Pence said.
The law addresses an increase in the state’s soil productivity factor, which is one component in the complex calculation used to assess property tax. The Department of Local Government Finance (DLGF), which oversees state property tax assessment, had updated a 30-year-old formula, which led to the change.

The proposed new factors used for farmland assessment in Indiana could have resulted in a 25 percent average increase in property tax, according to the Indiana Legislative Services Agency (LSA), which provides fiscal analysis for the General Assembly.
Pence signed the bill, in part, because he wants Indiana farmers to have a competitive tax structure, said Kara Brooks, press secretary for Pence.

The factor fix

Indiana Farm Bureau (IFB) backed SEA 319, calling it a “fix” for what it deemed “unreasonable increases in the state’s soil productivity factor.

“This is a proud and momentous day for both Governor Pence and Indiana Farm Bureau. His signature on this legislation, his very first, gives some degree of tax certainty to Hoosier farmers for another year,” said IFB President Don Villwock.

“And, unlike the gridlock we have become accustomed to in our nation’s capital, we are proud of the Indiana General Assembly for putting politics aside in favor of helping Indiana agriculture.”
Some media have reported this law amounts to a tax break or corporate welfare for farmers, said Andy Dietrick, director of IFB public relations. He said that is a misrepresentation. “It is a legislative fix for a regulatory overreach of a state agency,” he opined.

Larry DeBoer, ag economist at Purdue, said the DLGF was doing its job by updating the old formula, which hadn’t been done since 1980, but he believes a mistake was made in the process. DeBoer is also a consultant to the LSA, which analyzed the economic impact of the new soil factors.

As the new law dictates, the DLGF will now work with Purdue’s experts to find new factors based on agronomic research. “If it’s done right, the new factors won’t be that different from the ones we have,” he said.

Pence believes Purdue’s input will be invaluable to the process. “Governor Pence believes strongly that soil productivity factors should be developed in consultation with the trusted, homegrown expertise of Purdue University and that the public have a chance to weigh in on the process,” Brooks stated.

What are soil factors?

Soil productivity factors measure properties of soil that affect corn yields, such as moisture-holding capacity and organic matter content, DeBoer said. Property tax assessment includes various components, including a base rate per acre.

Every farmer pays the same base rate; however, not all acreage is equally valuable. Therefore, the soil properties index attempts to address those differences, DeBoer said. The current index is a range from 0.5-1.28.

For properties deemed least profitable, a value of 0.5 is assigned.
According to the current system, the highest soil factor is 1.28. The new factors had increased the highest value to 1.66, raising the average soil factor of Hoosier farmland from 0.95 to 1.2. That would have resulted in the vast majority of farmers paying more taxes, DeBoer said.

In the past 30 years, productivity on Indiana farmland has increased. The base rate takes rising corn yield into account, but so does the soil properties index, he explained. His concern is while farmers may owe more taxes, they should not be paying twice on yield.

“Farmers should pay more, but they shouldn’t pay twice. I think most people would agree with that,” DeBoer said.

With rising base rates per acre, farmers are paying more. The base rate for taxes in 2013 is $1,630, up from $1,500 for 2012 and $880 for 2007. The base rate is the main contributor to rising assessed values for farmland, DeBoer said.

He thinks the new factors index will take up to several years to complete, since a new formula will need to be developed by Purdue’s agronomists and the DLGF. Until an agreement is reached on a new soil productivity index, the current factors will apply, he said.

“There is a right answer for what a property is worth. There is not a right answer for who should pay – that’s a political question. The politicians will have to decide how to distribute the burden of property taxes among businesses, homeowners and farmers, and that’s been changing a lot lately,” DeBoer said.